How to trade
2 January 20
All economists learn at an early stage about free and controlled markets. An open economy is a market where the price of goods is determined completely by the decisions of buyers and sellers and based around the principle of supply and demand. Free Markets follow the ideal of 'laissez faire' which proposes the concept of restricting government intervention in economic matters including determining the prices of goods by varying tax levels for example. Therefore with government intervention limited free markets are able to thrive and provide the goods and services needed by the economy. Following on from the idea of the free market is that of the invisible hand. This states that individuals who act in their own self interest promotethe good of the entire community through the principle that an individual trying to maximise his profits will also increase the totalrevenue of the society.
Until recently we in Runescape had what was essentially a free market where the players set the prices through their drive for maximum revenue and basedtheir decisions on the principle of supply and demand. When demand for goods was high and supply was low we saw prices increase to accomodate for theincreased demand and visa versa. Although in a very simple state this was a free market, Jagex had minimal input into the economy on the surface. Some mayargue that Jagex have always had complete control over the economy, the fact is that we, the players had far greater control as driven by the principle ofthe invisible hand we sought out maximum revenue and in turn provided maximum revenue for the economy as a whole. The introduction of the Grand Exchange and the new trading restrictions have effectively stripped us of our control of the economyand has placed the power in Jagex's hand defying the concept of the free market and creating a closed market where either directly or indirectly Jagex now regulates the price, breaking the natural flow of money. With schemes in place that prevent us from trading outside of the 3k limit difference in price for goods we have essentially lost the ability to determine the price of goods and services. Although to some this may seem insignificant or beneficial because weno longer have to worry about prices becoming too high or too low, we in fact have to worry more than ever.
What Jagex has created is a system whereby the Grand Exchange takes note of the prices we buy and sell goods at and adjusts its price mechanism to produce a price range at which we can trade at. This may seem perfectly OK but it prevents the market from adapting quickly to changes in demand and supply and hence changes in price. We have already seen Yew Long Bows being priced too highly and as a result very few buy them but the Grand Exchange just cannotadapt quickly enough to show market trends. Many items in Runescape are price elastic meaning that a small change in price will result in a large change in the quantity demanded. An example of suchan item is a Partyhat, one of the most expensive items in the game. When we see even a slight decrease in the price of Partyhats buyers jump at the chanceto buy them. Is this possible with the grand exchange? No is the simple answer. Not only can the GE not update its prices fast enough, it cannot allow the natural laws of supply and demand take their full effect thus producing a false market.
As well as the Grand Exchange we will soon have a new trading system whereby we cannot buy goods if we do not offer within the 3k price difference for that good. How does this allow us to have economic growth? This prevents the market from organising its own prices just as much as the Grand Exchange asit relies on the GE for its price ranges. Price elastic goods will all but be negligible as changes in price can no longer occur fast enough to accomodatetotal demand in the economy and so Jagex leaves us in a position where prices will continuously drop as people cannot determine whether or notthese items are worth buying as the simple law of supply and demand no longer applies due to too much intervention by Jagex.Now, you may be wondering what is so bad about a controlled market and i will tell you. The Grand Exchange and the new trading system do not accurately demonstrateconsumer preferences meaning that at times we may find huge surpluses in some items and shortages in others as producers are not willing to sell theirprices at the prices set by Jagex in the grand exchange. I know that Jagex does not exactly set the price but the Grand Exchange does not demonstrate changesin supply and demand quickly and accurately enough. Therefore in some instances we will have the Grand Exchange mediance price for Nature Runes set at240 gp due to low demand for Natures and so Runecrafters don't make them as much and switch to Death Runes.
However, if as a result of a new update the demand for Natures suddenly increases there just won't be enough Natures in circulation to accomodate this and so in theory those who could afford to pay more would and those who can't won't resulting in an increase in price. Does the GE and new trading system allowthis? No. The trading system will not reflect the true demand quickly enough and so we will not be able to trade. The point of this thread is to inform more players about the current situation so that they realise what we have actually lost with the introductionof these updates and how it will effect future game play. I have no gone into full detail about possible future events as it is too difficult towork out due to the increased influence of Jagex's ingame features controlling the market.
This is in response to a question posted later on in the thread but i thought i'd post it here as many of the points are relevant to my original post.
The laissez faire theory is relevant when considering Jagex's control of price ranges and their restriction on the market. When dealing with laissez faire it is also important to take note of the many different aspects.
In the current economy, not In RS we do not follow this principle entirely as we rely on the government to set minimum wages, welfare programs and many other schemes. However, the government has never attempted to influence the market as much as Jagex is now doing. When we lost the ability to control the price ranges direcetly, we lost more than just the market, we lost the game. Jagex is responsible for every aspect of the game but the market was the one we controlled and it enabled us to remove all inefficiencys thus allowing the players to determine what to produce, how to produce it and when to produce it. In the near future we will have to influence all our decisions based on what Jagex wants as they control the Grand Exchange pricing system and that control us.
In respect to the Federal Reserve when did they ever try and set price ranges and not allow us to trade outside of it? If such a scheme was in place in the UK then would Northern Rock ever sell? No. All firms in a position such as Northern Rock are sold at below market values in order to save them from bankruptcy and having a negative effect on the economy. The Fed controls much of the economy by using monetary policies and by the trade of government securities allowing it to influence interest rates. By controlling interest rates the Fed is able to control the money supply but Jagex cannot and should not attempt to do this as the RS economy is not as complex. We do not have banks lending money, we do not have minimum wages or other such schemes and so attempting to control the economy in such a way just won't work.
One other thing i'd ask you to consider is this, are friends lending to us in a way the same as banks lending to us? By borrowing from friends we were able to afford more and essentially put more back into the economy. Many players were content in not spending their cash and investing in rares and occasionally lent to friends with the condition that they paid some interest. Jagex now plans to remove lending between friends meaning less money enters the economy and causes a recession instead of economic growth, is that what RS needs?
The problem with the example you gave is that Jagex has not done this, they are actually trying to directly control the economy by setting iron clad price ranges which we cannot trade outside of. I know that the aim of the Fed is to keep inflation low and so prevent frequent price changes but Jagex cannot succesfully do this sadly. It is far too difficult for them to implement schemes to do this as we are all working to gain maximum revenue for ourselves, there are no companies in RS with shareholders etc and so Jagex cannot control us in the way they are trying to do as it will distort the natural flow of prices.
With the exception of Discontinued items there is relatively little inflation in the game and if anything when uncontrolled by Jagex we have decreased the levels of inflation by ourselves. Items such as Green Dragonhides have remained at a relatively constant price for many years now ranging from 1.4k to 1.7k each. If we were unable to do this then i would say go ahead Jagex try your best to control the market and reduce inflation but the fact is we have always been able to keep the market at a relatively constant level with demand meeting supply and inflation being kept low.
Until recently we in Runescape had what was essentially a free market where the players set the prices through their drive for maximum revenue and basedtheir decisions on the principle of supply and demand. When demand for goods was high and supply was low we saw prices increase to accomodate for theincreased demand and visa versa. Although in a very simple state this was a free market, Jagex had minimal input into the economy on the surface. Some mayargue that Jagex have always had complete control over the economy, the fact is that we, the players had far greater control as driven by the principle ofthe invisible hand we sought out maximum revenue and in turn provided maximum revenue for the economy as a whole. The introduction of the Grand Exchange and the new trading restrictions have effectively stripped us of our control of the economyand has placed the power in Jagex's hand defying the concept of the free market and creating a closed market where either directly or indirectly Jagex now regulates the price, breaking the natural flow of money. With schemes in place that prevent us from trading outside of the 3k limit difference in price for goods we have essentially lost the ability to determine the price of goods and services. Although to some this may seem insignificant or beneficial because weno longer have to worry about prices becoming too high or too low, we in fact have to worry more than ever.
What Jagex has created is a system whereby the Grand Exchange takes note of the prices we buy and sell goods at and adjusts its price mechanism to produce a price range at which we can trade at. This may seem perfectly OK but it prevents the market from adapting quickly to changes in demand and supply and hence changes in price. We have already seen Yew Long Bows being priced too highly and as a result very few buy them but the Grand Exchange just cannotadapt quickly enough to show market trends. Many items in Runescape are price elastic meaning that a small change in price will result in a large change in the quantity demanded. An example of suchan item is a Partyhat, one of the most expensive items in the game. When we see even a slight decrease in the price of Partyhats buyers jump at the chanceto buy them. Is this possible with the grand exchange? No is the simple answer. Not only can the GE not update its prices fast enough, it cannot allow the natural laws of supply and demand take their full effect thus producing a false market.
As well as the Grand Exchange we will soon have a new trading system whereby we cannot buy goods if we do not offer within the 3k price difference for that good. How does this allow us to have economic growth? This prevents the market from organising its own prices just as much as the Grand Exchange asit relies on the GE for its price ranges. Price elastic goods will all but be negligible as changes in price can no longer occur fast enough to accomodatetotal demand in the economy and so Jagex leaves us in a position where prices will continuously drop as people cannot determine whether or notthese items are worth buying as the simple law of supply and demand no longer applies due to too much intervention by Jagex.Now, you may be wondering what is so bad about a controlled market and i will tell you. The Grand Exchange and the new trading system do not accurately demonstrateconsumer preferences meaning that at times we may find huge surpluses in some items and shortages in others as producers are not willing to sell theirprices at the prices set by Jagex in the grand exchange. I know that Jagex does not exactly set the price but the Grand Exchange does not demonstrate changesin supply and demand quickly and accurately enough. Therefore in some instances we will have the Grand Exchange mediance price for Nature Runes set at240 gp due to low demand for Natures and so Runecrafters don't make them as much and switch to Death Runes.
However, if as a result of a new update the demand for Natures suddenly increases there just won't be enough Natures in circulation to accomodate this and so in theory those who could afford to pay more would and those who can't won't resulting in an increase in price. Does the GE and new trading system allowthis? No. The trading system will not reflect the true demand quickly enough and so we will not be able to trade. The point of this thread is to inform more players about the current situation so that they realise what we have actually lost with the introductionof these updates and how it will effect future game play. I have no gone into full detail about possible future events as it is too difficult towork out due to the increased influence of Jagex's ingame features controlling the market.
This is in response to a question posted later on in the thread but i thought i'd post it here as many of the points are relevant to my original post.
The laissez faire theory is relevant when considering Jagex's control of price ranges and their restriction on the market. When dealing with laissez faire it is also important to take note of the many different aspects.
In the current economy, not In RS we do not follow this principle entirely as we rely on the government to set minimum wages, welfare programs and many other schemes. However, the government has never attempted to influence the market as much as Jagex is now doing. When we lost the ability to control the price ranges direcetly, we lost more than just the market, we lost the game. Jagex is responsible for every aspect of the game but the market was the one we controlled and it enabled us to remove all inefficiencys thus allowing the players to determine what to produce, how to produce it and when to produce it. In the near future we will have to influence all our decisions based on what Jagex wants as they control the Grand Exchange pricing system and that control us.
In respect to the Federal Reserve when did they ever try and set price ranges and not allow us to trade outside of it? If such a scheme was in place in the UK then would Northern Rock ever sell? No. All firms in a position such as Northern Rock are sold at below market values in order to save them from bankruptcy and having a negative effect on the economy. The Fed controls much of the economy by using monetary policies and by the trade of government securities allowing it to influence interest rates. By controlling interest rates the Fed is able to control the money supply but Jagex cannot and should not attempt to do this as the RS economy is not as complex. We do not have banks lending money, we do not have minimum wages or other such schemes and so attempting to control the economy in such a way just won't work.
One other thing i'd ask you to consider is this, are friends lending to us in a way the same as banks lending to us? By borrowing from friends we were able to afford more and essentially put more back into the economy. Many players were content in not spending their cash and investing in rares and occasionally lent to friends with the condition that they paid some interest. Jagex now plans to remove lending between friends meaning less money enters the economy and causes a recession instead of economic growth, is that what RS needs?
The problem with the example you gave is that Jagex has not done this, they are actually trying to directly control the economy by setting iron clad price ranges which we cannot trade outside of. I know that the aim of the Fed is to keep inflation low and so prevent frequent price changes but Jagex cannot succesfully do this sadly. It is far too difficult for them to implement schemes to do this as we are all working to gain maximum revenue for ourselves, there are no companies in RS with shareholders etc and so Jagex cannot control us in the way they are trying to do as it will distort the natural flow of prices.
With the exception of Discontinued items there is relatively little inflation in the game and if anything when uncontrolled by Jagex we have decreased the levels of inflation by ourselves. Items such as Green Dragonhides have remained at a relatively constant price for many years now ranging from 1.4k to 1.7k each. If we were unable to do this then i would say go ahead Jagex try your best to control the market and reduce inflation but the fact is we have always been able to keep the market at a relatively constant level with demand meeting supply and inflation being kept low.
